The sector index , stuck in six-month downward trend in which it has plummeted more than 40 percent, broke below last week’s low and hit its lowest level since the heat of the financial crisis in April 2009.

“The market fears liquidity problems for the banks following the rise in overnight loans from the European Central Bank earlier this week. We’re getting more and more signals pointing towards the spectre of the interbank crisis of 2008,” said Sebastien Barthelemi, credit analyst at Louis Capital Markets, in Paris.

Earlier this week, data showed the ECB dollar operation was used for the first time since February, with a single euro zone bank borrowing $500 million of the one-week dollars at a fixed interest rate of 1.1 percent, well above the rates that trusted banks can get dollars for on open markets.

Data from the ECB showed on Friday that 107 million euros ($153 million) were borrowed from its overnight loan facility in the past 24 hours, down from 212 million euros the day before.

A banking analyst, speaking on condition of anonymity, said funding worries are weighing on the banks, as are wider worries about a potential double dip recession.

OVERSOLD, BUT NO TURNAROUND IN SIGHT

“The market is falling and banks are seen as very risky,” he said. “It’s funding concerns, it’s a new recession, it’s investment banking revenue trends and there are concerns over earnings.”

While there is ample liquidity from the European Central Bank, that does not mean funding concerns are not an issue, Daiwa Capital Markets credit analyst Michael Symonds said in a research note.

“What is more of a concern is how damaging the steep rise in long-term funding costs will be for the long-run viability of European banks,” he wrote.

After a brief respite earlier this week, Friday’s slide in banking shares pushed the sector index into ‘oversold’ territory again, with its 14-day relative strength index (RSI) falling to 25.4. Thirty and below is considered ‘oversold’.

But other widely-followed momentum indicators such as the moving average convergence-divergence (MACD) and the Stochastics-Slow weren’t signalling any change in trend in the short term.

The six-month slump in the European financial sector has brought stock valuation levels to well below the ones of U.S. and emerging peers.

According to Thomson Reuters Datastream, shares of financial institutions in the Asia-Pacific region trade at 9.7 times forward earnings, U.S. financial stocks trade at 8.7 times earnings, financials in emerging economies trade at 8.5 times and European financials trade at 6.8 times.

Data also show European banks trading at 0.59 times their book value, way below the average price-to-book value of 1.2 for Egyptian banks despite the country’s political turmoil. ($1 = 0.699 Euros) (Additional reporting by Dominic Lau in London; graphics by Scott Barber in London; Editing by Hans-Juergen Peters)